If you operate a business and engage the services of an individual (independent contractor) other than one who meets the definition of an employee, and you pay him or her $600 or more for the calendar year, you are required to issue the individual a Form 1099-MISC soon after the end of the year to avoid penalties and the prospect of losing the deduction for his or her labor and expenses in an audit.

The due date for mailing the recipient his or her copy of the 1099-MISC that reports 2017 payments is January 31, 2018. That is also the due date for filing the 1099-MISC with the IRS.

Reminder: It is IRS Tax Scam Season Too

Imagine you receive a call from an IRS agent who says you owe back taxes and threatens to arrest you if you don’t immediately make a payment over the phone.

Thousands of Americans faced this situation in 2016, though the people on the other end of their phone lines weren’t actually from the IRS. They were scam artists calling across the world from Mumbai, India. Their aggressive intimidation of U.S. taxpayers brought in $150,000 a day until police cracked down on their call center.

Amazingly, con artists impersonating IRS agents were involved in a quarter of all the consumer fraud incidents reported to the Better Business Bureau last year, making it by far the most common financial scam. With the new tax-filing season underway, now is the time to be especially vigilant.

The threatening approach used in Mumbai is just one variety of IRS scam. Another involved sending emails from fake IRS addresses telling taxpayers that due to a mistake they were owed larger refunds. According to the email, all they had to do was provide their bank information and prepay the tax due on the larger refund. Once they made the prepayment, both the scammer and their supposed refund disappeared.

See through any IRS scam

By following a few guidelines you can see through any IRS scam:

Digital communication is a big no. The IRS will never initiate contact with you via email, text message or social media, nor will they request personal or financial information over those channels. If you do get an email communication purporting to be from the IRS don’t click on any links or open any attachments. Instead, forward the email to phishing@irs.gov.

Mail first. The first contact from the real IRS will be through the mail. If you get a letter from the IRS that is unexpected or suspicious, it should have a form or notice number searchable on the IRS website, www.irs.gov. Compare what you find there with what you received. If it doesn’t look right, you can call the IRS help desk at 1-800-829-1040 to question it.

Never pay by phone. A legitimate IRS agent will never make a call to demand immediate payment of a bill or ask you to provide your debit or credit card information over the phone. If you are suspicious, ask for the employee’s name, badge number and phone number. A real IRS agent won’t hesitate to provide this information. You can then politely end the call and dial the IRS at 1-800-366-4484 to confirm the person’s identity.

Millions of Americans take advantage of their employer’s cafeteria plan that allows setting aside pre-tax dollars to be used to pay for qualified health care expenses. The problem with these plans has always been that if you do not use the funds in the account by the end of the year they are forfeited. Some employers have established an allowable “grace period rule” that gives an additional two months and 15 days to use the funds before they are forfeited.

New rules

The maximum annual amount that can be set-aside in Health FSA’s is now set at $2,500 (indexed to inflation after 2012). Old rules allowed this account level to be set by employers offering the benefit (usually $5,000). By reducing funds available for this benefit, the government is hoping it will help pay for the new health care law. With this law change, the IRS agreed to reconsider the long-standing “use it or lose it” rules within FSA’s.

Effective in 2013, employers can opt to change their Health FSA plans to allow up to $500 in unused funds to be carried over into the following year. If an employer opts to do this, they need to forgo any allowable grace period rules currently within their FSA plan.

What you need to know

Don’t assume you can carry over $500. With all the press around this rule change, many run the risk of assuming you don’t have to spend all your Health FSA funds by the end of the year. Remember, your employer must first make the rule change in their FSA plan before you can carry over unspent funds.

Look for a notice. Ask your employer’s human resource department what the company’s plan is with the new rule. You will need to plan for next year’s withholding based on their answer.

Contributions and spending must match. Just because you carry over $500 into next year, do not assume you can ask for expense reimbursements over the $2,500 limit during any one year. You cannot. So if you carry over funds, you may need to reduce your contribution into your FSA the next year.

A Health Savings Account (HSA) is usually a better option. Don’t confuse the Health FSA with the HSA benefit. If you are in a qualified high deductible health insurance plan, you may also be an active participant in an HSA. This pre-tax savings account can be used to pay for qualified medical expenses AND unused funds can be carried over into future years. As long as the funds are used for qualified expenses, there is no tax obligation. This type of savings account is usually preferential over the Health Care FSA option.

Sound confusing? It can be. Until you receive definitive word your employer is changing their plan, it is best to use up your FSA funds prior to the end of your plan year.

The past couple of weeks have been quite an ordeal for a lot of folks in the greater Houston area. A lot of people lost their homes and livelihoods in Galveston, Bolivar Peninsula and the surrounding areas. Thousands suffered power outages lasting days to weeks.
The good news coming out of the IRS is that they are postponing the filing and payment deadlines for for Louisiana and Texas taxpayers affected by Hurricane Ike to January 5th, 2009.

If you have not filed a tax return for 2007 tax year, you still have time to do so, and claim your stimulus payment. You must file by Oct. 15 to get your payment this year. Below is the basic framework: